AutoNation Inc. (AN) saw a profit of $71 million or 51 cents per share in the fourth quarter of 2011 compared with $68 million or 45 cents per share in the comparable quarter of 2010 (excluding debt refinancing costs of $1 million or 1 cent per share, after-tax), reflecting an increase of 13% on a per-share basis. With this, the company has beaten the Zacks Consensus Estimate of 48 cents per share.

Revenue went up 13% to $3.7 billion from $3.2 billion in the year-ago period, driven by stronger retail new and used vehicle sales. It was higher than the Zacks Consensus Estimate of $3.5 billion.

New vehicle revenues appreciated 17% to $2.1 billion. This translated into revenue per vehicle of $34,650, up from $33,465 a year ago. The retailer’s new vehicle sales grew 13% to 60,191 units and 10% on a same store basis. The rise in unit sales was higher than the industry sales increase of 7% (CNW Research data).

Used vehicle (retail and wholesale) revenues went up 12% to $882.2 million. Used vehicle sales rose 7% to 41,946 units, transforming into per vehicle revenue of $17,968, up from $17,534 in the fourth quarter of 2010.

Revenues in the parts and services business grew 2% to $573.1 million while that in the finance and insurance business rose 17% to $124.9 million.

Gross profit increased 6% to $579 million from $545 million in the year-ago quarter due to an increase in retail new vehicle gross profit, as well as an increase in finance and insurance gross profit. Gross profit per new vehicle retailed was positively impacted by $34 in the quarter related to additional incentives primarily on premium luxury vehicles previously sold.

Gross profit per new vehicle retailed increased 2% to $2,451, despite the decrease in additional incentives compared to the year-ago period. However, gross profit per used vehicle retailed fell 5% to $1,485. Finance and insurance gross profit per vehicle retailed increased 5% to $1,223.

Operating income increased 7% to $143.5 million from $134.6 million a year ago. This translated into an operating margin of 3.9% versus 4.1% a year ago.

Segment Details

Revenues in the Domestic segment – comprising stores that sell vehicles manufactured by General Motors (GM), FordMotor (F) and Chrysler – hiked 14% to $1.2 billion. Unit sales rose 21% to 20,059 vehicles. Segment operating income improved 21% to $44.1 million from $36.5 million in the fourth quarter of 2010.

Revenues in the Premium Luxury segment – comprising stores that sell vehicles manufactured primarily by Daimler AG’s (DDAIF) Mercedes, and BMW and Lexus – went up 18% to $1.1 billion. Unit sales rose 28% to 12,434 vehicles. Segment operating income rose 6% to $69.8 million from $65.7 million in the comparable quarter of 2010.

Annual Results

For the full year 2011, AutoNation reported an increase in profit to $286 million or $1.94 per share from $247 million or $1.56 per share in 2010. The figures excluded debt refinancing costs of $1 million (after-tax) or 1 cent per share for 2011 and $12 million (after-tax) or 8 cents per share for 2010. Revenues in the year went up 11% to $13.8 billion from $12.5 billion in 2010.

Share Repurchases

During the quarter, AutoNation repurchased 6.3 million shares for $217.8 million. Meanwhile between January 1, 2012 and January 25, 2012, the company has repurchased 3.5 million shares for $122.1 million.

AutoNation’s Board of Directors authorized the repurchase of up to an additional $250 million of its common stock. With the increased authorization, the company had approximately $278 million worth of shares remaining under the Board-approved share repurchase authorization as of January 25, 2012. As of January 25, 2012, the company had approximately 132 million shares outstanding.

Financial Details

AutoNation’s cash and cash equivalents declined to $86.6 million as of December 31, 2011 from $95.1 million as of December 31, 2010. The company’s inventory was valued at $1.8 billion as of December 31, 2011 versus $1.9 million as of December 31, 2010. Meanwhile, capital expenditures decreased to $158.1 million in 2011 from $161.8 million in the prior year.

Our Take

AutoNation is the largest automotive retailer in the U.S. and is about twice the size of its nearest competitor. As of December 31, 2011, the company owned and operated 258 new vehicle franchises that sell 32 brands located in major metropolitan markets in 15 states.

AutoNation’s effort to expand its dealer network by investing in existing stores and service centers will help it to outgrow peers. The company believes new vehicle sales will continue to improve with the long-term recovery in the U.S. market.

However, tough competition and rising interest rates are some of the threats faced by the company. As a result, the shares of the company currently retain a Zacks #3 Rank, which translates to a short-term (1 to 3 months) rating of Hold and we reiterate our long-term recommendation of Neutral for the long-term (more than 6 months).